COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE FY '06 OPERATING BUDGET - - - - Room 696, City Hall Philadelphia, Pennsylvania Tuesday, March 8, 2005 10:25 a.m. - - - - BILLS 040767, 040789, 050001, 050002, 050003, 050007, 050008. RESOLUTION 050022. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 274 I N D E X WITNESS PAGE VINCENT JANNETTI, Finance............ 275 ANTHONY JOHNSON, Finance............. 278 MICHAEL WILLIAMS, Finance, MBEC...... 283 CANDACE HITCHCOCK, MBEC.............. 287 NANCY KAMMERDEINER, Revenue.......... 329 JOHN NACCHIO, City Treasurer......... 421 275 03/08/05 - FY '06 OPERATING BUDGET
Good morning, everyone. This is a continued public hearing of the Committee of the Whole regarding Bill Nos. 050003, 050002, 050001, 040789, 040767, 050007, 050008, and Resolution 7 No. 050022. Before we start our hearing, I would like my colleagues to note that tomorrow's schedule has been changed just a little. At 10 o'clock we will hear from City planning rather than the Procurement Department, and at 1:45 Procurement will be scheduled. Our first witness this morning is the Finance Director. Good morning.
Kindly identify yourself for the record and proceed with your testimony.
Good morning, I am Vince Jannetti the acting Director of Finance. I'm here on behalf of the employees of the Office of the Director of Finance to provide 276 03/08/05 - FY '06 OPERATING BUDGET testimony on the Department's proposed FY '06 Operating Budget. With me are finance representatives who are available to answer your questions. The Office of the Director of Finance's Fiscal 2006 budget for all funds totals $1.1 billion. The largest single component of the all funds budget is the employee fringe benefits budgeted at 838.9 million. This represents a 57.1 million or 7.3 percent increase over the current FY '05 projection. This change is due to continued increases in pension and healthcare costs. The General Fund budget request is 907.6 million. The General Fund share of employee fringe benefits totals 754.5 million. Other significant elements of the finance budget are the Core Scholarship Program, legal services, witness fees, contributions to educational organizations and indemnities. This budget includes a contribution to the Community College of $22.5 million and a $35 million contribution to the School District. 277 03/08/05 - FY '06 OPERATING BUDGET The office of the Director of Finance is comprised six divisions: Executive Direction, the Office of Budget and Program Evaluation, Minority Business and Enterprise Council, the Accounting Bureau, the Office of Administrative Review and Risk Management. The proposed direct appropriations in Fiscal '06 General Fund for the Office is $18.3 million, which is a decrease of $697,500 from the current year projection. This decrease is the result of a 3 percent reduction in personnel services necessary to maintain a balanced budget. This budget anticipates 154 full-time General Fund positions, a decrease of five position from the FY '05 adopted budget level. Other departments, boards, and commissions under the direction of the Office of the Director of Finance will provide separate testimony. I'm happy to answer any questions you may have at this time.
Thank you 278 03/08/05 - FY '06 OPERATING BUDGET Mr. Jannetti. You mention in your testimony that the City's pension payment is one of the fastest growing components in our budget. Can you state for the record why this is increasing? And would you also state for the record what the minimum municipal obligation is? And isn't it true that by paying the MMO, you're allowing the accrued unfunded liability to grow, therefore, ensuring the City's future payments will increase? Good morning. Please identify yourself for the record.
Good morning. I am Anthony Johnson, Chief Investment Officer of the City's Pension Fund. At the time, I do not have the dollar figure for MMO. I will furnish that to you as soon as possible.
I can get to you tomorrow when we make our testimony for the Pension Fund. 279 03/08/05 - FY '06 OPERATING BUDGET
The increase in the pension, the MMO is the minimum amount that the City has to pay in order to meet its obligation for contributions into the Pension Fund. I think historically we have paid over that minimum amount, but I think in the past two years we have reduced that payment down to what the minimum is mandated by the State. I think it's Act 205 that mandated what our minimum would be according to our actuarial calculations. The increase in the costs have occurred because of the low returns that we earned in 2001 and in 2002, creating a larger deficit in the pension plan. That deficit has since been recovered on a returns basis, however, the way the actuaries calculate, the contribution to this Pension Fund, it looked back over a longer period of time, five-year period of time, and over that five-year period we are still including the low returns that we earned in 2001 and 2002 which is creating a larger pension payment into the pension plan.
Can you 280 03/08/05 - FY '06 OPERATING BUDGET tell us, is the accrued unfunded still growing?
The accrued unfunded is still growing. I don't want to guess, but the way the chart is calculated, the pension contribution will grow out for the next five to years and then will start to decline 9 thereafter. But I will get that peak and 10 decline number for you tomorrow.
While you're there, I don't know if you or Mr. Jannetti can answer this. You're requesting $279 million in the General Fund for pensions. How much of this is for the normal cost component versus the accrued unfunded liability?
Madam Chair, we don't have that breakdown. We will provide that also.
All right. And based on the latest actuary report, what is the total of the City's unfunded liability?
We don't have that 281 03/08/05 - FY '06 OPERATING BUDGET report with us. We will have a complete report for you tomorrow.
On 9-17 of your detail, you give a breakdown of your various contracts. Can you tell us who CDR Financial Products, Inc., are and what services they provide?
CDR Financial Products is the City's swap advisor. They advise us on the swaps that we have in place and on proposals for swaps.
And at the same time you're requesting $275,000 for financial advisory services, what services do these firms provide to the City?
Those firms are for more general financial advisory services, looking at opportunities for bonds, helping us with our rating agency presentations. There's a whole host of things they do for us.
Well, do the FAs receive additional compensation from the City by working on the various bond transactions? 282 03/08/05 - FY '06 OPERATING BUDGET
You're also requesting $300,000 for a benefits consultant and $200,000 for an actual consultant. Can you explain what these requests are for and why they're needed?
We are looking at the City's benefits plans, and so we have to constantly keep on top of these.
Are they, in fact, looking at what we've been hearing about for the last two years about self-insurance?
I think if we're paying that kind of money, we ought to know what we're paying for.
Since the 283 03/08/05 - FY '06 OPERATING BUDGET Minority Business Enterprise Council is a component of your budget, what actions have been taken to increase minority participation in City contracts? What percentage of the City's contracts are going to minority firms?
To answer that, I will ask Mike Williams to come to the table.
Good morning. Welcome. Please identify yourself for the record.
Michael P. Williams, Deputy Finance Director and Director of the Minority Business Enterprise Council. Good morning.
Yes, I did. For Fiscal Year 2004, the number of contracts going to minority business enterprises was 10.65 percent, and for women-owned business enterprises was 6.03 percent.
And did I 284 03/08/05 - FY '06 OPERATING BUDGET read -- I just saw the headline, but did the Mayor issue a directive this past weekend?
I didn't read the paper. Can you spell it out for the record, if you will?
The Executive Order is part of the City's anti-discrimination order for contracting. It covers Minority Business Enterprise Council and contracting for minority, women, and disabled-owned businesses in City contracting, City government.
Does anybody has a question on that, or can I go on? You'll be here the rest of the hearing.
When will we 285 03/08/05 - FY '06 OPERATING BUDGET get a copy of the Executive Order?
I will send you a copy. I sent a copy to your aid, Derek, but I will go back to my office.
I think it would be nice all had a copy of it. I mean, we have to read the papers what's going on?
On this issue. How does this Executive Order compare to the bill he approved in 2003?
The Law Department has created a sheet where it lists the differences and similarities between the Executive Order and the ordinance. And I will talk to the Law Department to get a copy of that over to Council today.
Does the Executive Order call for an annual disparity study? And does the Executive Order call for participation ranges for City contracts being 286 03/08/05 - FY '06 OPERATING BUDGET determined in each year?
It does not call for an annual disparity study, and it does not list a specific percentage amount of contracts through there. It lists aspirational goals and it lists what departments need to do and what MBEC needs to do to increase the number, but it does not list specific percentages in the Executive Order.
How will the Executive Order stand up to legal challenges based on well-established case laws that requires remedies for discrimination to me narrowly tailored?
I think that's probably a question for the Law Department because it's a legal reason. But as an attorney, I feel that it will stand up well. But I think that's a question that the Law Department. They probably can answer better than I can.
Thank you. 287 03/08/05 - FY '06 OPERATING BUDGET The Chair recognizes Councilman Goode.
I have had the opportunity to read the Executive Order. I pulled it off line this morning. Can you walk me through the benchmarking process?
Good morning. Please identify yourself for the record.
My name is Candace Hitchcock, Deputy Director of Operations for the Minority Business Enterprise Council. You asked about the benchmarking process?
It is the setting of an annual goal per department based on the department purchasing procurements for the 288 03/08/05 - FY '06 OPERATING BUDGET upcoming fiscal year. We determine, looking at that your purchasing activity, the opportunities for minority, women, and disabled businesses that might be achieved during the upcoming fiscal year.
I actually asked Mr. Williams to walk me through the process. I know what the benchmarking process is. My question is, at what point do you request those goals? My understanding is those goals have to be approved by MBEC. If they're not approved by MBEC, does MBEC then institute its own goals for those departments? Just walk me through the process in terms of how it will actually take place.
I apologize, Councilman. What we've done, as Candace has already said, is we will review again a department's purchasing processes and their contracting activity. We, last year, sent out the goals around May 1.
I don't want to interrupt you, I just want to make sure we're going through a process step-by-step. Is 289 03/08/05 - FY '06 OPERATING BUDGET there a point in time in each year where you will request benchmarks from each department?
Absolutely. We'll request them in May, a month before the current fiscal year ends in that year and before the next fiscal year. So, for example, for this year, we'll ask for them in May for Fiscal Year '06. So we'll send out the information to them with our benchmarks and then we'll ask them for compliance plans and come back and let us know how they're going to contract.
And you will review those benchmarks to determine whether they're acceptable to MBEC?
I would hope that it will not take more than a month to do that because of all the departments and all the give and take we have to do. We will try to get them finished before the fiscal year begins. 290 03/08/05 - FY '06 OPERATING BUDGET
So if you disagree with those benchmarks sent by departments, what happens?
We would go to the Director of Finance and register a complaint with them that we did not accept their benchmarks. The Director of Finance would have to mediate the dispute between our department and the department in question.
So the beginning of each fiscal year, we should, in fact, have benchmarks for each department?
And those benchmarks, per the Executive Order, will be shared with Council?
Was there a benchmarking process that led toward the numbers achieved for 2004?
There was not, to my knowledge. I wasn't here at the beginning of that fiscal year. No, she said we did not do that. 291 03/08/05 - FY '06 OPERATING BUDGET
The question I'm really asking is -- I've read the Executive Order. I'm pleased with a lot of it covers what was in the bill that Council passed. As a result of passing that bill and increased attention on this issue, seemingly the Administration has gone from 2 percent in contracting minority and women to roughly 16 percent. My question is, how did you get there? Because you didn't get there per Executive Order because there was no Executive Order. So what part of this Executive Order was used to increase contracting with minorities and women?
Well, you're correct, Councilman, an Executive Order wasn't here. I would an imagine that all the attention surrounding this issue, the hearings that Council had, the Executive Order that the Mayor put out, the changes in MBEC starting with hiring me with allowing me to bring enforcement and compliance wing to actually stay on top of departments and to actually start monitoring and meeting with them 292 03/08/05 - FY '06 OPERATING BUDGET quarterly, I think that put the attention on that. And with all this collaborative effort, city departments heard loudly and clearly that they have to do more minority contracting. And not only to give minority contracting on subcontracts, but to also to give opportunities for minorities and women to become prime contractors.
So the Mayor has now set a goal of at least percent for 12 minorities and women by 2006; is that correct. 13
At what point and 15 how do we reach that goal? In addition to the 16 individual departments benchmarks at the 17 beginning fiscal year or, I think, per the 18 Executive Order every six months, there is 19 some overall benchmarking process? 20
Every six months, we 21 will compile the statistics from minority, 22 women, and disabled-own contracting and 23 present them to the Administration and to the 24 City Council see how far folks are going. For 25 example, if we get reports that are low in 293 03/08/05 - FY '06 OPERATING BUDGET some departments, we'll be able to go back to them and say, "You need to do more." And at the end of the year, we'll have those statistics and if they don't meet those benchmarks --
Do you anticipate, because an Executive Order only lasts only months and there's reporting 10 every 6 months, do you anticipate every 6 11 months having an overall benchmark that gets 12 you to 26 percent? In other words. If you're 13 16 percent now, do you anticipate 6 months 14 from now you'll be at 18, 19, percent; 15 after 6 months you'll be at 22 percent; after 16 that you'll be at 26 percent by the end of the 17 18-month period? Is there an actual -- how do 18 you actually get to 26 percent through the 19 benchmarking process? 20
Well, I think if you laid it out there, sir, we have to look at what contracting we have, look at the level where we are right now. Right now, our mid-year percentage for 2005 is roughly 9 percent for minority contracting and about 6.5 294 03/08/05 - FY '06 OPERATING BUDGET percent for women contracting. So we'll have those numbers. We'll go back to the departments. We have all their statistics. We'll go back and say, "Well, this is where you are now and this is the goal we thing we need to be based on your contracting and based on your history.
I guess the question I'm asking is, how often do you revisit that? In other words, is there an actual goal of overall benchmarking set for the new fiscal year?
There's just the goal of percent at some period at the end 18 of 2006 and there's nothing in between here 19 and that future point yet? 20
Well, from the 21 Mayor's speech and what I gleaned from the 22 Mayor's speech is that at some point at the 23 end of his administration, he wanted it at a 24 certain number. So that he didn't lay out a 25 plan for us to get there, but I think through 295 03/08/05 - FY '06 OPERATING BUDGET the Executive Order and what we have in place right now will get us to that goal.
Why doesn't the Executive Order go beyond September 2006?
The Law Department drafted that, sir, and I think that has to be, respectfully, a question for them.
Because seemingly, the Executive Order would end before the goal would be reached.
If there's no 14 goals between now and then, the Executive Order actually expires September 2006. The Executive Order could literally expire without ever reaching the stated goal.
Well, the Executive Order will expire it, but as reading it, it can be reauthorized. And, hopefully, at that time, it will be reauthorized.
I guess essentially what I'm saying is you never reach the percent before the Executive Order 25 expires. That doesn't necessarily make any 296 03/08/05 - FY '06 OPERATING BUDGET sense if you don't set any goals between now and the expiration date of the Executive Order.
Well, I apologize, Councilman. All I can really say is that the Mayor had made this pronouncement, and we understand what those numbers are, and we at our department will try to work with the departments to reach that goal. I think that's the only thing I can say to you.
Do you believe that there should be some goal set before the percent goal at the end of 2006? 15
Well, I think that 16 you can't set any specific goals -- I think 17 this is a question for the Law Department. I 18 think you can't set specific goals because it 19 would bring us out of line with some of the 20 court cases that say you can't set anything 21 specific. I think that's the law is, but I'm 22 not sure. 23
I think what the 297 03/08/05 - FY '06 OPERATING BUDGET Mayor had said is his aspiration was to actually do that, but I didn't think that he had commanded a percent goal. That may be 5 just my interpretation of that. 6 Nevertheless -- 7
You're 13 welcome. 14 The Chair recognizes Councilman 15 Rizzo. 16
This is to the 17 Finance Director, please. 18 I know this isn't your specific area 19 of responsibility, but since it's a financial 20 issue, I'd appreciate you assisting this 21 Committee and getting the information to the 22 Chair that I need. With all this conversation 23 about wireless networks, I started to look 24 through some files and did a little bit of 25 research. In the Year 2000, a company called 298 03/08/05 - FY '06 OPERATING BUDGET Metrocom installed, not just in Philadelphia but through the suburban areas, a wireless network. The assets of that company were acquired by a company call Ricochet. I spoke with one of the executives there that tells me that we spent over a million dollars on this network that has been abandoned in place. That is not a good situation. There are 4,000 units that have been installed to light posts, not just in Philadelphia but in suburban communities, that are ready to be switched on. So all this talk about building a wireless network in the City, what's troubling to me is we've spent over a million dollars already. So I'd like to get all of the documents from the Procurement Department, the Department of Public Property, to find out how we could have spent a million dollars plus on a venture and just abandon it. Do you have any knowledge of this transaction?
Councilman, I do not. I will look into it for you and get back to you.
Again, the 299 03/08/05 - FY '06 OPERATING BUDGET company was Metrocom. They went out of business. A company called Ricochet Networks acquired their assets. The executives hearing about this transaction contacted me and informed me within weeks, if the network is still here, that it could be activated with very little difficulty. And we spent, just a ballpark, well over a million dollars.
Thank you, Madam President. Does the Finance Department make the investment decisions for the Pension Fund, for the city employee Pension Fund.
No, Councilwoman. The investment decisions for the Pension Fund are made by the Pension Board, by the members of the Pension Board with assistance from the investment staff at the Board of Pensions.
Thank you 300 03/08/05 - FY '06 OPERATING BUDGET very much. Mr. Williams, when it is decided how we're going to up those numbers, we certainly want to work with you in that regard and appreciate the opportunity to work with you in various areas as we try to somehow increase women and minority participation.
You're welcome. The Chair recognizes Councilwoman Tasco.
I have a couple questions. I'd like to go back to Mr. Williams and then come back to the Finance Director. Recently, I believe now the city waste contract is up. And there's a process going on now about the selection of the contract as well as the minority participation. Did MBEC do a compliance 301 03/08/05 - FY '06 OPERATING BUDGET review on that? Are you participating in that process and have you done a compliance review of the bids that have been submitted?
You've done a compliance review? With you at the table during the course of the discussion when the bids were submitted for a review by the selection committee?
You reviewed the bids for the participation of minorities and women on those contracts?
Do you feel there are a sufficient number of companies that are involved in each of the bids?
Not on each of them, but the majority of them were within the ranges that we set.
I was contacted by a vendor -- and maybe int he upcoming 302 03/08/05 - FY '06 OPERATING BUDGET election or new bid ethics rule, I might not be able to work on behalf of my constituents. But I had a constituent contact me regarding the effort to become certified as a DBE and one of your requirements is they must submit their income taxes. And he didn't feel very comfortable with that because he didn't feel comfortable with the security and confidentiality of his records in your office. If he feels that way, it may not be true, but if that is a sense that other people have, what are you doing to assure information provided to your department is kept confidential and secure?
Well, we have locked cabinets for our certification files, and we also have permitted vendors on occasion when they request such that we need to review their information and as it relates to personal tax returns review it information and return it to the applicant. We document in our files that that has been done.
So have you had enough question about the confidentiality and 303 03/08/05 - FY '06 OPERATING BUDGET security of these records to cause people not to comply?
To my knowledge, we haven't had a serious problem with people not complying with the personal financial information. There has been reluctance, be we seem to overcome that. We offer them the alternative, Councilwoman.
So if a vendor chooses to bring their tax returns in and sit with a compliance officer or a review officer, whatever you call them, and go over the return there at that time, they're allowed to do that?
Yes, they are. That does not apply to the unified certification program which we are involved in as well, but that's another process. But under the City's program, we can do that.
That's the disadvantaged business program that we are a member of the state-wide certification program 304 03/08/05 - FY '06 OPERATING BUDGET for federal projects and federally funded projects. There are two different programs that we operate in the City. And that is primarily because we are a grant recipient of federal funds for the airport and federal highway program.
We were compelled o join the unified certification process. There's five entities in the state. The City --
That was mandated by the Secretary of Transportation four years ago.
Federal Secretary. So in that process, the vendor has to leave their personnel, confidential information with your office.
Who has access 305 03/08/05 - FY '06 OPERATING BUDGET to this information?
The access is to the certification unit that we have in our office, and they are under locked files.
What assurance do they come under to keep this information confidential.
As a participant in the unified certification program, we are bound to sign a confidentiality statement.
Has there ever been a time when someone felt that their information in appropriately distributed to someone that should not have had it?
Just wanted to raise the question since it was brought to my attention. Thank you very much. Let me ask the Finance Director a question. In your testimony, you stated that the Finance Department's budget anticipates 154 full-time positions, a decrease of five positions from Fiscal Year '05 budget. 306 03/08/05 - FY '06 OPERATING BUDGET However, in Section 9, of the budget detail the '06 budget request has 163 positions, with the majority of these additional positions in MBEC. Could you explain this?
In your testimony you talk 154 full time positions, but in Section 9, of your budget detail, it outlines 163 positions, of those positions are going to MBEC.
Councilwoman, the 154 positions mentioned in the testimony was the General Fund. The larger number includes Water Fund and Grants Fund employees.
That's General Fund, Water, Grants. It's all -- we have employees that are funded from other funds.
So it's not counted as part of your number of employees?
In the budget detail, let's look at that, it states that you're going to have 163 positions.
Councilwoman, are you finished with your questioning?
Thank you. Mr. Jannetti, could you explain the $125 million for purchase of services and the Water Residual Fund?
The 125 million in 308 03/08/05 - FY '06 OPERATING BUDGET the Water Residual Fund is the appropriations for the New River City money, the money that's going to be funded from the Water Sinking Fund Reserve.
I believe the intent is to use an authority to do the development.
I don't know at this pointy yet, Madam President, how exactly we're going to do that.
So I guess you can't tell us what Procurement process will be used in awarding the contracts.
You're not there yet. Do you think you'll know before it's budget time to be voted upon?
What 309 03/08/05 - FY '06 OPERATING BUDGET revenues are you projecting the General Fund from the scoop in each year of the plan?
From the scoop in each year of the plan, from the Water Fund.
In Fiscal '06, we're estimating $3.3 million; in Fiscal 07, we're estimating 2.9; in Fiscal '08, we're estimating 1.9 million; and '09, 1.9; and 1.9 in '10 also.
I don't know whether you or Ms. Reed would be able to answer this question. During the capital hearings, Maxine Griffith testified that the recommended capital spending level is only minimally sufficient to maintain municipal facilities. Can you tell us how many maintenance trade employees we have in the General Fund?
Personally, I believe that with the proper 310 03/08/05 - FY '06 OPERATING BUDGET number of maintenance employees in the City, we would save a lot of money, as deferral maintenance in the long run is just going to cost the City more. I would like you and perhaps Ms. Reed or whoever to look into asking the Administration just if they would look into that and give us their findings before we can conclude our budget process. For instance, I think we have -- I don't know how many roofers we have working for us throughout the City. It's ridiculous. We have to put it out on bid. We have to wait forever. By the time the bid goes out, say, at a recreation center and we experience that in one of our facilities. By the time they got around to dealing with the roof, there were are any number of damages done to the interior of the building. I think if we were to have in-house people doing this type of work would certainly be much more cost efficient, but it's something that I'm asking the Administration to look into and give us a report of their findings before end our budget process, particularly since our Capital Budget 311 03/08/05 - FY '06 OPERATING BUDGET is really shrinking. And if we have to wait until Capital Budget actually stockpiles requests for work that has to be done at some of our facilities, I think we're asking for an awful lot of trouble.
Thank you. The Chair recognizes Councilwoman Brown.
Recently I received a note about the mandatory and voluntary MBEC participation. Can you explain the change and the why?
Councilwoman, I'm saying the voluntary form is used when there are no ranges on the project.
Ranges on the 312 03/08/05 - FY '06 OPERATING BUDGET project. That's the only time I understand Procurement uses that.
The project is listed with no ranges. The voluntary form is to capture any participation that may occur voluntarily so that no amount of participation is missed. It's a project that either is small or does not necessarily lend itself to ranges. And so the voluntary form is in there in case there happens to be a minority or woman or disable business who happens to bid as prime or who happens to be a sub on that project.
So in other words, I think it's an aggressive approach by MBEC to try to go after every part of participation that we can. Some of these smaller projects do not lend themselves to ranges, but we want to put them there any way. So that's the difference.
So it becomes a part of a packet as such and you send out a 313 03/08/05 - FY '06 OPERATING BUDGET packet to folks who want to secure certification with MBEC?
All right then. The second question, please, actually comes in two parts. How long have you been with us now, Mr. Williams.